MARKET 1 Lecture Notes - Lecture 26: Real Estate Broker, Stock Market, Horizontal Integration
Document Summary
When agency theory apply on a national or international level, we call corporate governance. The larger the firm is, the higher the management costs. Horizontal integration: what kinds of different products do you have in your firm? (products that are closely related) Shell: totally vertically integrated: critical dimensions of transaction: 4 conditions which can predict if there"s high chance that there will be high transaction costs, main focus is on potential opportunistic behavior, asset specificity -> hold-up. Renegotiate the contract, cheat on you, show opportunistic behavior. The most important reason that would explain the need for vertical integration. Lock-in: past dependence, even when being in an inefficient situation, there is better alternative, but we choose to be in an inefficient point because of high switching costs. There is a (informal) contract/ market relation between 2 actors) But is affected (has some risk) by the behavior of the agent. Choice agent affect the outcome for the principal.
